Weak industry, investment to cap Oct-Dec GDP growth

A worker uses a welding torch to weld an iron machine at the construction site of a flyover in New Delhi January 6, 2014.
REUTERS/Anindito Mukherjee/Files

By Manoj Kumar| NEW DELHI

NEW DELHI Contracting industrial output and an investment slowdown likely capped India's economic growth below 5 percent in the three months to December, despite a pickup in exports and farm output.

Asia's third-largest economy is expected to grow by 4.9 percent in the quarter from a year earlier, in line with expectations for the fiscal year to March and a shade up on the 4.8 percent pace in the preceding quarter, according to a Reuters poll of economists.

Growth has slowed to half the rate of the boom years of the past decade, likely condemning Prime Minister Manmohan Singh's government to defeat in a general election expected to be held in April and May.

Singh had sought to unleash a wave of investments by fast-tracking approvals for $80 billion in infrastructure projects last year, but implementation has been patchy and the eventual spurt in activity will come too late to deliver an election boost.

The opposition's candidate for prime minister, Narendra Modi, whose campaign is building momentum, has meanwhile shifted to a more pro-growth stance, saying India should be more open to foreign investment.

"If Modi manages to secure a strong government, he will be in a much better position to push through policies needed to revive investments and overall economic growth," said Miguel Chanco, India economist at Capital Economics, Singapore.

Goods exports and strong rural demand due to rising farm output are likely to propel the economy in the fiscal third quarter while manufacturing, which had been a growth driver before the global financial crisis, is likely to weigh on overall activity.

Industrial output including manufacturing and mining, which contributes around a quarter of India's $1.8 trillion economy, contracted at rates of between 1.3 percent and 0.6 percent during the October-December period from a year earlier.

Elevated borrowing costs have added to manufacturers' woes after the Reserve Bank of India hiked interest rates three times between September and January to curb stubborn inflation which showed no signs of easing even as growth tumbled.

While wholesale inflation did slow to an eight-month low in January, the fall was driven by softer food and vegetable prices which are considered volatile and could head higher again.

Still, economists expect domestic demand to regain momentum later this year after the elections. The government forecasts a recovery in growth to near 6 percent for the fiscal year 2014/15 which begins in April.

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